Christopher Mey
Head of Emerging Markets Debt
Emerging market debt has treated investors well lately. Hard-currency sovereigns have benefited from high coupon yields, tighter spreads and a few well-timed recoveries, while corporates have followed a similar script — with high yield doing much of the heavy lifting. But, says Candriam Head of Emerging Market Debt Christopher Mey, 2026 won’t be a year for simply buying the index and waiting for another easy leg of spread compression.
He expects returns to lean more on income, with wider gaps between winners and losers — and a market that demands sharper judgement on politics, funding and currency risk.
"The message for Emerging Markets is: income is attractive, but dispersion will decide outcomes."
EM debt has had a strong couple of years. What changes as we turn into 2026?
Christopher Mey: The starting point is different. After a strong run, broad spread tightening is a smaller part of the return potential — and in several pockets spreads look tight versus history. Opportunity hasn’t disappeared; the market is just less forgiving of weak credits.
That pushes the return mix back toward carry and roll-down. All-in yields are still attractive, but when carry does more of the work, you can’t ignore downside: one bad position can wipe out months of income. Expect sharper, shorter bursts of volatility than a smooth one-way market.
Where do you expect those bursts of volatility to come from?
CM: More from country-level politics and policy choices than from a single global shock. A tougher US trade stance, shifting sanctions and supply-chain changes will land unevenly. Some countries will benefit; others will see their risk premium rise if policy credibility or external balances look fragile.
Elections add a further catalyst. Where governments lean on short-term financing to fund promises, markets can quickly worry about inflation and central-bank independence. The index can look calm while a handful of names gap wider — so we focus on dispersion, not “EM” as one trade.
Defaults have dominated the narrative at times. What does the default picture look like for 2026?
CM: We expect fewer defaults than in recent years, but there are still fault lines. Senegal stands out as a key near-term risk. Argentina looks less risky than it has for a while — improved versus the worst of the cycle, even if uncertainty remains.
Lebanon and Venezuela are still in default, and any restructuring path is likely to be slow. The important point is that default risk is increasingly idiosyncratic, which makes the credit work non-negotiable.
Where do you see value today — sovereigns versus corporates, and hard currency versus local?
CM: In hard-currency sovereigns, spreads look tight versus history, but there’s nuance. EM investment grade still trades around 20 basis points wider than US investment grade, and EM high yield sits above its five-year average premium to US high yield. Yields are still elevated in absolute terms — around 6.8% for EM sovereigns[1].
Corporates look tight on spreads too but compare more reasonably with US corporate credit and with EM sovereigns. Hard-currency corporate yields are roughly 6.3%[2] while maintaining average BBB rating, and in many cases you still pick up yield versus similar US credit. Local currency can work if the Fed keeps cutting, but FX is the swing factor — so the bar for owning a currency has to be high.
What are you watching in flows and issuance?
CM: Inflows have improved — in 2025 net inflows were around $32bn[3] — helped by attractive yields and a steadier global backdrop. But cumulative flows since 2021 are still negative, about $63bn[4], so demand can recover further without being a straight line.
A key technical risk sits at the long end of EM investment-grade curves. Crossover demand has been supported by a shortage of long-duration US investment-grade paper. If US IG issuance rises materially in 2026, with bigger concessions, long-dated EM IG could lose some scarcity appeal.
China always finds its way into the EM backdrop. What’s your base case?
CM: China’s credit environment remains constrained by structural issues and fragile domestic demand. Policy looks more like targeted support than a sweeping stimulus — sector measures and “trade-in” subsidies rather than one dramatic lever.
The upcoming 15th Five-Year Plan points toward iadvanced manufacturing and greater technological self-sufficiency, alongside programmes aimed at lifting consumption. For markets, that mix tends to keep the curve anchored because stability is a priority. We prefer higher-quality issuers aligned with policy direction, and we still see the renminbi as a potential funding currency given low yields.
How are you framing the range of potential outcomes for EM debt in 2026 — and what factors could shift that picture?
CM: In our base case, we assume a soft landing, with some weakening in US jobs and confidence data partly offset by continued investment linked to AI. We see further normalisation in Fed policy, with two or three cuts over the year. Under that scenario, we expect roughly 7% for EM hard-currency sovereigns, around 6% for hard-currency corporates, and about 8% for local-currency assets.[5]
In a less favourable scenario with a mild US recession, we’d expect spreads to widen, defaults to rise and EM FX to weaken — partly offset by more scope for global rate cuts. Returns there look closer to neutral for hard-currency sovereigns, about +1% for hard-currency corporates, and roughly 4% for local[6]. The message: income is attractive, but dispersion will decide outcomes.
Read more about the team’s emerging market debt expertise
That current environment plays to Candriam’s established EM debt platform, where deep country research and active positioning are used to navigate dispersion across sovereign, corporate and local markets.